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I could have had a VA...
Old 08-07-2006, 11:06 PM   #1
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I could have had a VA...

Objections to Variable Annuities seem to center around their high sales commissions and annual 2% fees, with early withdrawal penalties.

Supposing a ten-year horizon, Fidelity's low .25% annual fee seems a small price to pay for compounding interest and dividends. No penalty for principal withdrawal, either.

What's so wrong with that?
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Re: I could have had a VA...
Old 08-07-2006, 11:31 PM   #2
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Re: I could have had a VA...

I'm not that up on annuities, but my understanding is that you may be penalized if you withdraw before age 59 1/2, and irrespective of that, all gains (even capital gains) are taxed as ordinary income. Seems like an okay holding place for bonds, REITs, or cash, but I wouldn't put equities in one.
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Re: I could have had a VA...
Old 08-07-2006, 11:42 PM   #3
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Re: I could have had a VA...

Fidelity allows withdrawal of principal without penalty.

Point taken on the tax factor.
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Re: I could have had a VA...
Old 08-08-2006, 06:26 AM   #4
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Re: I could have had a VA...

I will be probably the only person here who can stand up for variable Annuities for some very specific cases

If you're young, in a high tax bracket, and save a large % of your income then a low cost variable annuity may be of use to you.

If you're already maxing out your 401(k), Roth, etc and have extra money that you aren't going to need for a long time then it can be a good place for your REITs and other hight income investments.

I would model it out on a spreadsheet and try to estimate your future tax rate (If that's possible :P) but there can be a benefit
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Re: I could have had a VA...
Old 08-08-2006, 06:47 AM   #5
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Re: I could have had a VA...

I agree with saluki here, but with the additional caveat that you alos have to be sure you can live with the restrictions.
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Re: I could have had a VA...
Old 08-08-2006, 07:39 AM   #6
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Re: I could have had a VA...

Hmmm

I penciled some numbers using Vanguard VA offerings back in the day(?15-16? yrs ago) of higher taxes, different RMD, and no Roth. I passed in favor of simplicity.

Yes - annuities(both fixed or variable) can have a place for a given ER situation although I suspect it's a distinct miniority and not a general case.

Make sure you are buying and not getting sold.

heh heh heh heh heh heh - vague memory says mandatory RMD was a selling point/driver back then. Times change.
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Re: I could have had a VA...
Old 08-08-2006, 08:50 AM   #7
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Re: I could have had a VA...

Quote:
Originally Posted by saluki9
If you're young, in a high tax bracket, and save a large % of your income then a low cost variable annuity may be of use to you.

If you're already maxing out your 401(k), Roth, etc and have extra money that you aren't going to need for a long time then it can be a good place for your REITs and other hight income investments.
I have never believed the above arguments.*

First if you are in a high tax bracket, you ain't eligible for a Roth.
Second, you can invest in a tax-managed way for the long term outside of a variable annuity.* The benefits of that are
(a) tax-deferral, just like in a variable annuity
(b) no additional expenses like the 0.25% mentioned or the variable annuity average expense of 2.4%
(c) no early withdrawal penalty
(d) no restrictions on when you can withdraw, no waiting to old age to withdraw
(e) on withdrawals, you pay long term capital gains tax on realized gains, not the higher marginal income tax rate.
(f) if you die, your heirs get your gains free of tax, instead of having to pay income tax on your gains.

In the disclosure of assets in the last Presidential elections, I don't recall variable annuities being used by the candidates to shelter income.* I do reall lots of tax-exempt bonds though.

Now that I wrote all the above, I must also write that I have a variable annuity.* It is the only way I could participate in my 403(b) plan.

We can use our 401(k)s and 403(b) (and their follow-on rollover IRAs) to "shelter" income investments like a REIT fund, commodities, and fixed income. There is no need to invoke a variable annuity for that purpose.
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Re: I could have had a VA...
Old 08-08-2006, 09:08 AM   #8
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Re: I could have had a VA...

LOL


1. Tax Managed investments for the most part imply low turnover and lower dividend equity investments. I specifically mentioned REITS and other income oriented investments

2. Since when did politicians become the benchmark of intelligent investments? Our local congressman (Who I am a big supporter of) disclosed his investments last year. He's a very bright man but his portfolio looks like it was assembled by a drunken baboon.

3. I can tell you that in the 9 years I've been working in advisory shops dealing with ultra high net worth investors I have seen plenty of very astute investors who put deposits of 5, 10 or 20+ million dollars into variable annuity and variable life contracts (low cost, and certainly not off the shelf products) for their tax characteristics

4. You may assume that because you have a bunch of choices when it comes to your 403(b) that others have the same. Many 401(k)s are very limited and have few income options and no REITS

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Re: I could have had a VA...
Old 08-08-2006, 09:15 AM   #9
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Re: I could have had a VA...

Quote:
Originally Posted by saluki9
1. Tax Managed investments for the most part imply low turnover and lower dividend equity investments.* I specifically mentioned REITS and other income oriented investments

2. Since when did politicians become the benchmark of intelligent investments?* Our local congressman (Who I am a big supporter of) disclosed his investments last year.* He's a very bright man but his portfolio looks like it was assembled by a drunken baboon.

3. I can tell you that in the 9 years I've been working in advisory shops* dealing with ultra high net worth investors I have seen plenty of very astute investors who put deposits of 5, 10 or 20+ million dollars into variable annuity and variable life contracts (low cost, and certainly not off the shelf products) for their tax characteristics

4. You may assume that because you have a bunch of choices when it comes to your 403(b) that others have the same.* Many 401(k)s are very limited and have few income options and no REITS
1. Me, too.
2. 3.. Since when did the ultra-rich become the benchmark of intelligent investments? Many rich folks did not make money through their investment acumen.
4. True.

Folks who have $5+ million to put into a variable annuity for tax planning are not like us.
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Re: I could have had a VA...
Old 08-08-2006, 09:23 AM   #10
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Re: I could have had a VA...

Quote:
Originally Posted by saluki9
3. I can tell you that in the 9 years I've been working in advisory shops* dealing with ultra high net worth investors I have seen plenty of very astute investors who put deposits of 5, 10 or 20+ million dollars into variable annuity and variable life contracts (low cost, and certainly not off the shelf products) for their tax characteristics
Saluki, are these private placement contacts? I've seen some of these things that basically put hedge fund portfolios inside separate account products. Is that what you are talking about?
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Re: I could have had a VA...
Old 08-08-2006, 09:25 AM   #11
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Re: I could have had a VA...

Quote:
Originally Posted by LOL!

2. 3.. Since when did the ultra-rich become the benchmark of intelligent investments? Many rich folks did not make money through their investment acumen.

I put a lot more faith in their investment acumen than I ever would in a politician considering what they do with our money




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Re: I could have had a VA...
Old 08-08-2006, 09:26 AM   #12
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Re: I could have had a VA...

Quote:
Originally Posted by brewer12345
Saluki, are these private placement contacts? I've seen some of these things that basically put hedge fund portfolios inside separate account products. Is that what you are talking about?
yes, that's exactly what they were. Some hold hedge funds, some are used for personal trading, and some are used to hold assets for non qualified executive pensions.



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Re: I could have had a VA...
Old 08-08-2006, 10:44 AM   #13
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Re: I could have had a VA...

Quote:
Originally Posted by saluki9
2. Since when did politicians become the benchmark of intelligent investments?* Our local congressman (Who I am a big supporter of) disclosed his investments last year.* He's a very bright man but his portfolio looks like it was assembled by a drunken baboon.
So are we to assume that he's using a financial advisor? Or would that require the pickled primate to be using darts?

FWIW I think politicians drive a lot of investment decisions. Taxes on dividends went up a few decades ago and suddenly most companies stopped paying them. Congress dropped dividend taxes a few years ago and boom, dividends are back in style again.
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Re: I could have had a VA...
Old 08-08-2006, 11:03 AM   #14
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Re: I could have had a VA...

Quote:
Originally Posted by Nords


FWIW I think politicians drive a lot of investment decisions. Taxes on dividends went up a few decades ago and suddenly most companies stopped paying them. Congress dropped dividend taxes a few years ago and boom, dividends are back in style again.
I don't think you would find anybody who would disagree that lawmakers drive a good part of the investment process. Having the ability to change the tax code is a big stick to carry.

However, that wasn't the point. The comment was in reference to what they do with their own investments.

That being said, if you look at our presidents' disclosure you will see why I think he needs to make some changes to his asset allocation.


http://www.opensecrets.org/pfds/pfd2...08072_2005.pdf




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Re: I could have had a VA...
Old 08-08-2006, 12:12 PM   #15
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Re: I could have had a VA...

Quote:
Originally Posted by saluki9
I will be probably the only person here who can stand up for variable Annuities for some very specific cases

If you're young, in a high tax bracket, and save a large % of your income then a low cost variable annuity may be of use to you.

If you're already maxing out your 401(k), Roth, etc and have extra money that you aren't going to need for a long time then it can be a good place for your REITs and other hight income investments.*

I would model it out on a spreadsheet and try to estimate your future tax rate (If that's possible* :P) but there can be a benefit
Well...........not the only one here......... Like all things, it depends on the need. I have worked with a number of ER that are looking for ways to "guarantee" a fixed income stream on part of their money.........annuities work in certain instances.

Most pensions are annuity contracts of some sort backed by an insurance entity anyone.........it blows me away how so many folks with PENSIONS hate annutiies...........they're in mnay ways the same thing.................
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